Who Is George Soros

Management Strategies for a Global Society Fall 2002

George Soros, International Financier – Philanthropist

Who is George Soros? Many people know him as the newsmaking international financier who made billions of dollars for himself and the clients of his investment fund, Quantum, literally breaking records for performance as he created a tremendous amount of wealth for investors. Still other people know

George Soros as a financial pirate, a "raider" who manipulates currency markets, vilified by heads of state for his greed and chicanery. From a look at his humble beginnings in pre World War II Hungary, through his education and struggling with small jobs, beyond to his glory days as the most highly paid investor on

Wall Street, and to his current role as a visionary philanthropist, funding causes that he believes will better the world for all peoples across the globe, we'll take a look at George Soros; a modern day enigma, philosopher and tireless advocate for openness and freedom in society.

George Soros’ view that oppression and intolerance hampered people in their daily lives must have started forming in early childhood. Even before his was born, his family had suffered at the hands of the oppressive Russian Communist

Bolshevik government, forcing his father into exile and life as a fugitive. As a young man of only around ten years age, his family was already on the run from the oppressive Nazi regime that was occupying his country of birth. A recent

Jay Stewart: Leadership Paper – George Soros Page 1 Management Strategies for a Global Society Fall 2002

Internet article by Alan Deutschman posted on salon.com describes his family's early life.

"Soros was born in Budapest in 1930 as Dzjcgdzhe Shorash and grew up in a family of haute bourgeoisie Hungarian Jews. His father, Tivadar, was an attorney who worked very little, preferring the pursuits of a bon vivant. He owned real estate and published an Esperanto journal. Tivadar's life of comfort and leisure, made possible in part by a good marriage, came after a perilous youth. He was a lieutenant in World War I when he was taken as prisoner of war on the Russian front and exiled to Siberia. He escaped and lived as a fugitive through the tumult of the Russian Revolution.

"Those survival skills were crucial to the family when the fascists invaded in World War II. Tivadar bribed government officials for false identity papers so his son could pretend to be the godson of a gentile bureaucrat. For a period, the family hid from the Nazis in nearly a dozen different attics and concealed stone cellars."i

Like Anne Frank who hid for a period during the war, in a small annex building in

Amsterdam at her father's fruit jelly company, Soros must have known the fear, uncertainty, and feelings of inadequacy that surely come with such a harrowing ordeal. Unlike the young girl, who's legacy was revealed to the world after her diaries were found and published, George Soros escaped the Nazi holocaust, making his way to London to seek his fortune and learn what would become his trade.

Soros moved to London shortly after the war and worked a variety of miscellaneous jobs including waiter, railroad porter, house painter, and also one job picking and harvesting apples. In 1948, Soros enrolled in the London School of Economics and began studying macroeconomics and learned the foundation for what would become his career for the next 40 plus years.

It was during this time that Soros was exposed to the ideas of Philosopher Karl

Popper, who was one of his teachers in London.

"Soros was strongly influenced by one of his professors there, Karl Popper, author of "The Open Society and Its Enemies." At a time when leftist intellectuals still had faith in the Marxist religion, Popper argued that Communism was as condemnable as fascism, since both were repressive and intolerant. Popper's ideas resonated with the young Soros, who had lived under the Nazi and Soviet occupations and had seen both regimes firsthand. Decades later, Popper's conception of the "open society" would be the basis for Soros' philanthropic efforts -- he would even borrow the term for the title of one of his own books." ii Duetschman. Salon.com

Soros felt that Popper's ideas were so influential, and that his philosophy would benefit mankind if followed. Soros would later base his world-view of Global

Capitalism on Popper's ideas, and based his philanthropic entity, the "Open

Society Institute" on its underpinnings.

Having set the goal to become a successful financial manager, Soros moved to

New York in 1956 with only $5,000 and began his rise toward king of the Wall

Street investment manager. Soros would become the most successful hedge fund manager in the world, earning several hundred million dollars each year from his currency speculations during the 1990s.

Soros became a leader by following other investor’s moves, as he knew that markets are moved by people’s actions, not economic theory. Duetschman describing Soros' investment strategies;

"Soros didn't accept the prevailing theory among economics professors, who held that markets are rational, that prices reflect every nuance of hard data and relevant information. He believed that investors influenced one another and moved in herds. Soros' trick was to try to understand that herd instinct. Most of the time he went along with the mob, but his real killings came from sensing when the trend would turn and getting out in front of the pack." iii

Even though Soros viewed himself as just another invester in the herd, he was often the decision-making leader in exploiting market imbalances, and by performing arbitrage in currency markets. In one spectacularly gutsy investment in 1992, Soros earned over one billion dollars.

In his book on Globalization, The Lexus and the Olive Tree author Thomas L.

Friedman describes the bet made by Soros against the value of the British Pound in 1992.

" . . . Soros had administered a stunning economics lesson to British Prime Minister John Major. Major thought the British pound was properly valued. Soros did not, and in September 1992 Soros led the herd in a campaign to force the British pound down to its "right" level. Major scoffed at Soros, then sneered at him, then resisted him, then raised a white flag and devalued the pound by 12 percent. Soros walked away with a profit of $1 billion from a couple of months' work. Goodbye Soviet Union. Hello, Electronic Herd." iv

Soros' other currency speculations, particularly during the Asian financial crisis of

1998, earned him vilification and scorn from affected national leaders. In The

Lexus and the Olive Tree, page 112, Friedman describes another instance where

Soros' investment activities earned him the scorn of a national leader.

"In September 1997, Malaysia's Prime Minister, Dr. Mahathir Mohamad, used the World Bank meeting in Hong Kong to denounce the evils of globalization, after Malaysia's stocks and currency markets were ravaged by global and local investors. Mahathir blasted "morons" who trade in currencies, and he accused the "Great Powers" and financiers such as George Soros of forcing Asians to open their domestic markets to global speculators and manipulating their currencies to destroy them as

competitors. He compared today's global capital markets to 'a jungle of ferocious beasts,' and implied they were directed by a Jewish cabal." v

While not all people feel so strongly about Soros' investment activities, it is clear that his success in betting on which way markets will move has earned him some detractors who feel that he acts as a corporate raider, exploiting imbalances in globalized markets, all with furthering his own self interest in mind, rather than in building strong economies.

Soros, showing a high degree of self-awareness, points out some of the problems with global capitalism in his book, On Globalization, published in 2002.

Starting on page 6, he explains how globalization can mean more market activity and wealth creation, but how the markets themselves do not take into account moral or social harm that may come as a result, and how nations must place a larger emphasis on social issues because of globalization.

"It is dangerous, however, to place excessive reliance on the market mechanism. Markets are designed to facilitate the free exchange of goods and services among willing participants, but they are not capable, on their own, of taking care of collective needs such as law and order or the maintenance of the market mechanism itself. Nor are they competent to insure social justice. These "public goods" can only be provided by a political process."

"But society cannot function without some distinction between right and wrong. The task of making collective decisions about what is allowed and what is forbidden is left to politics--and politics suffers from the difficulties of reaching collective decisions in a world that lacks a strong moral code. Even the creation and maintenance of markets requires political action. This point is well understood by market fundamentalists. What is less well recognized is that the globalization of markets without a corresponding strengthening of our international political and social arrangements has led to a very lopsided social development." vi

Soros retired from his Wall Street investment responsibilities in 2001, and although he has been active as a philanthropist since 1979, when he started providing scholarship funds to black students in South Africa, he has publicly stated that he will give away his fortune in the next 10 years. The largest example of this is Soros' "Open Society Institute", a non-profit entity that funds several organizations that foster openness and freedom in civil society. He mainly gives away his fortune in countries that were once part of the Soviet bloc, having lived through both Nazi and Soviet occupation in his home country of

Hungary. Toward this end, many activities are supported that support building and maintaining institutions and groundwork for open society.

One somewhat amusing example of this support is related by Deutschman in his article on Salon.Com's website, which describes how Soros' foundation helped empower people in Eastern Europe after the fall of the Berlin wall.

"The Soros Foundations' push for liberalization in Eastern Europe began with a focus on his native Hungary in the early '80s as a showcase. One of his first coups was surprisingly simple: His foundation discovered that photocopiers were rare in the country, so it gave 400 machines to libraries and universities as a way of fostering free expression and dissemination of ideas." vii

Soros belief in "open society" might be considered one of "empowerment", as he believes that truth, being unattainable, should be left to the individual. In his book, Open Society - Reforming Global Capitalism, on page 130, he defines

"open society" thusly:

"My own definition would include various freedoms and human rights, the rule of law, and some sense of social responsibility and social justice.

"The freedom of thought and expression and the freedom of choice can be directly derived from our fallibility: Since the ultimate truth is beyond our reach, we must allow people to think for themselves and make their own choices. The fact that our understanding is imperfect does not mean that there is no ultimate truth; on the contrary, the lack of adequate knowledge implies the need for an element of faith. Open society has nothing against religion. But the principles of open society would be violated if religion tried to dictate to those who do not subscribe to it." viii

One initiative that Soros' Open Society Institute has funded in the United States is in the area of drug policy reform. Soros has used his influence and motivation

Jay Stewart: Leadership Paper – George Soros Page 8 Management Strategies for a Global Society Fall 2002 to help foster a debate about what has become a very hard issue for politicians.

From Duetschman, Salon.com;

"Starting in the mid-'90s, Soros pushed his reform efforts into the United States, most conspicuously with his criticisms of the nation's war on drugs. He argues that the emphasis should be on treating addicts, not on criminalizing them. Soros supports the Lindesmith Center, a leading advocate of drug legalization. The center is run by Ethan Nadelmann, a rabbi's son and former Princeton professor, who is one of the most outspoken and charismatic crusaders in the cause. Soros has also funded needle exchange and methadone treatment programs and supported medical marijuana ballot initiatives in seven states, including California and Arizona. Joseph Califano Jr., director of Columbia University's National Center on Addiction and Substance Abuse, calls Soros "the Daddy Warbucks of drug legalization." ix

Certainly, some drug law relaxation does seem to fit into Soros' (and perhaps more correctly, Popper's) vision of an Open Society, in which personal freedom of action and thought take precedence over the State's moralistic compunction to control, and even homogenize behavior amongst citizens.

From his tenuous beginnings as the son of a society Jewish lawyer suffering with others during Europe's great struggle with itself to the highest paid man in the world, I believe George Soros has shown the emotional intelligence and not let greed drive his decision-making. Indeed, as his noteworthy philanthropic efforts

Jay Stewart: Leadership Paper – George Soros Page 9 Management Strategies for a Global Society Fall 2002 have shown, Soros has a grand vision of a greater peaceful planet in which oppression of thought and action are unheard of, and where human rights and social protections guarantee each global citizen with a reasonable standard of living. As Soros has pledged to give away his fortune by the time he's eighty,

I'm sure we'll soon attempts and hopefully positive results from his Open Society

Institute's efforts to further change and openness such as that which has allowed globalization in our modern world.

Jay Stewart: Leadership Paper – George Soros Page 10 i Alan Deutschman – Salon.Com article about George Soros, entitled “He went from apple harvester to capitalist kingpin to progressive savior.” ii Deutschman – Salon.com iii Deutschman – Salon.com iv Thomas L. Friedman, The Lexus and the Olive Tree, Anchor Books, 1999 - Page 328 v Friedman, Page 112 vi George Soros, On Globalization, PublicAffairs/Perseus Books Group 2002, Page 6 vii Duetschman – Salon.com viii George Soros, Open Society – Reforming Global Capitalism¸ Public Affairs/Perseus Books Group 2000, Page 130 ix Duetschman – Salon.com